Sunday, January 31, 2016

Some very interesting ideas here.
From the Federal Reserve Bank Of New York's Liberty Street Economics blog, August 29, 2012:

The United States has slid into eight recessions in the last fifty
years. Each time, the Federal Reserve sought to revive economic activity
by reducing interest rates (see chart below). However, since the end of
the last recession in June 2009, the economy has continued to sputter
even though short-term rates have remained near zero. The weak recovery
has led some commentators to suggest that the Fed should push short-term
rates even lower—below zero—so that borrowers receive, and creditors pay, interest.

One way to push short-term rates negative would be to charge interest
on excess bank reserves. The interest rate paid by the Fed on excess
reserves, the so-called IOER, is a benchmark for a wide variety of
short-term rates, including rates on Treasury bills, commercial paper,
and interbank loans. If the Fed pushes the IOER below zero, other rates
are likely to follow.

Without taking a position on either the
merits of negative interest rates or the Fed's statutory authority to
fix the IOER below zero, this post examines some of the possible
consequences. We suggest that significantly negative rates—that is,
rates below -50 basis points—may spawn a variety of financial
innovations, such as special-purpose banks and the use of certified bank
checks in large-value transactions, and novel preferences, such as a
preference for making early and/or excess payments to creditworthy
counterparties and a preference for receiving payments in forms that
facilitate deferred collection. Such responses should be expected in a
market-based economy but may nevertheless present new problems for
financial service providers (when their products and services are used
in ways not previously anticipated) and for regulators (if novel private
sector behavior leads to new types of systemic risk). This post
supplements an earlier post in Liberty Street Economics that reviewed possible disruptions that could result from zero interest rates.

Cash and Cash-like Products
The
usual rejoinder to a proposal for negative interest rates is that
negative rates are impossible; market participants will simply choose to
hold cash. But cash is not a realistic alternative for corporations and
state and local governments, or for wealthy individuals. The largest
denomination bill available today is the $100 bill. It would take ten
thousand such bills to make $1 million. Ten thousand bills take up a lot
of space, are costly to transport, and present significant security
problems. Nevertheless, if rates go negative, the U.S. Treasury
Department’s Bureau of Engraving and Printing will likely be called upon
to print a lot more currency as individuals and small businesses
substitute cash for at least some of their bank balances.

If
rates go negative, we should also expect to see financial innovations
that emulate cash in more convenient forms. One obvious candidate is a
special-purpose bank that offers conventional checking accounts (for a
fee) and pledges to hold no asset other than cash (which it immobilizes
in a very large vault). Checks written on accounts in a special-purpose
bank would be tantamount to negotiable warehouse receipts on the bank’s
cash. Special-purpose banks would probably not be viable for small
accounts or if interest rates are only slightly below zero, say -25 or
-50 basis points (because break-even account fees are likely to be
larger), but might start to become attractive if rates go much lower....MORE

It is unclear at this point what exactly happened, but these are the
details ABC News has received from Mexican officials so far:

5:35 AM: Guzmán was taken in restraints by two prison guards on a routine cell transfer.

6:05 AM: Prison staff could not locate Guzmán or the two prison guards’s whereabouts. The prison was put on lockdown as personnel went looking for them.

7:15 AM: A prison van was found abandoned only a mile away from the
prison. Mexican officials believe the two guards, who began working at
the prison just months ago, were actually members of the Sinaloa Cartel
working for Guzmán.

Before today’s escape, Mexican officials were working to extradite “El Chapo” to the United States, where he faced drug trafficking charges connected to his cartel, authorities said.
This is now the third time Guzmán has escaped from a Mexican prison
and brings into question Mexico’s ability to keep corruption out of it’s
penal system....MORE

Truth is
people like me have overhyped self-driving cars. Now that I’ve had a
great look at the state of the art I’m quite convinced that your jobs
are safe for at least a decade. After that you are pretty screwed,
though, so you better take that decade and invest in your education and
learn something else.

Here’s the inside scoop, from some of the pioneers in the industry.

I
visited Virginia’s Tech Transportation Institute and spent an hour with
Jared Bryson, director of its smart road testing factility. I live video broadcast that on Facebook, here, so you can see what we discussed. Afterward I visited Michael Fleming,
CEO of TORC Robotics which is just across the field from the smart
road. His team at Virginia Tech came in third at the DARPA Challenge
back in 2007 (Stanford and Carnegie Mellon teams joined Google to form
its autonomous driving teams).

In
his building he has military vehicles, all sorts of earth moving
equipment, and consumer cars that are outfitted with LIDARs, cameras,
and other sensors. TORC is working with many manufacturers to bring
self-driving capabilities to all of us.

Finally,
I’ve spent quite a bit of time with Mercedes Benz’ autonomous driving
team, and I’ve met many others who are working on such technology at
Google, Alibaba, and other places. (I interviewed the Stanford team back
in 2007 and had the first video of the Google car driving around in Silicon Valley way back in 2009).

Mercedes gave me a lengthy ride around the Nevada desert in their latest E Class, which has autonomous driving features. You can see all that video here. (You see the head of the Mercedes team, Michael Hafner, in front of that car on this post).

Just so you can see that I’m probably more up to date on the topic than other people.

Which gets me to the point of this article.

When
I think of self driving cars I am not thinking of mere driver
assistance features like pulling out of your garage, radar-assisted
cruise control (all three of my Toyotas have that, by the way), keep in
lane features, or parking features.

No, I am talking about the full monty: where a car can drive around town without any human inside AND without a steering wheel.

That’s
what it will take to threaten the Uber driver’s livelihood. We are a
LONG way from being able to buy that kind of car for less than $40,000,
which is what it would take too. Some of the insiders say we’re 15 years
away from such a car. Some say even more.

There are HUGE challenges to having such a car driving around that simply haven’t been solved yet. Here’s just some:

Humans
don’t like programming their cars. Heck, most humans don’t even like
using Waze, which helps make your drive much nicer (by routing you
around traffic accidents, warning you of objects in road, potholes, and
stuff like that). My wife won’t even use cruise control and we have
really amazing cruise control systems in our Toyotas.

We
have thousands of social rules when it comes to cars. Think about it,
when you are in a crosswalk you look at the eyes of the driver coming
toward you to know whether or not she/he will stop. That’s just one
rule. There are many, many, other rules and we don’t yet have a car that
communicates with other drivers, or pedestrians, in any real way.

We
don’t have sensors that work in all situations. Last February I drove
in a heavy snowstorm where I could hardly discern where the lane was.
Yes, I know, that was stupid of me to do, but sensors simply aren’t good
enough to withstand those kinds of situations yet.

Our current
compute power isn’t good enough. In China recently my driver went
through a crowd of hundreds of people. Our current systems can’t handle
that kind of complexity right up close to the car. How did our driver
handle it? By relying on social rules. Going slow, honking, and watching
for people who weren’t paying attention. The people working on these
technologies say that’s just too complex for our current systems.

Maps aren’t good enough.
Next month I’ll be headed to Seattle to see Here Maps (formerly
Nokia/Navtek/Microsoft map team). They are building new maps
specifically for self driving cars. Why aren’t current maps good enough?
They aren’t accurate enough, they don’t have all the signage on them.
They haven’t yet figured out where all the potholes are and aren’t
updatable easily enough by sensors being driven around....MORE

The
equation developed by Dr Grimes, a post-doctoral physicist at Oxford,
relied upon three factors: the number of conspirators involved, the
amount of time that has passed, and the intrinsic probability of a
conspiracy failing.

He then applied his equation to four famous
conspiracy theories: The belief that the Moon landing was faked, the
belief that climate change is a fraud, the belief that vaccines cause
autism, and the belief that pharmaceutical companies have suppressed a
cure for cancer.

Dr Grimes's analysis suggests that if these four
conspiracies were real, most are very likely to have been revealed as
such by now.

Specifically, the Moon landing "hoax" would have
been revealed in 3.7 years, the climate change "fraud" in 3.7 to 26.8
years, the vaccine-autism "conspiracy" in 3.2 to 34.8 years, and the
cancer "conspiracy" in 3.2 years.

"The
mathematical methods used in this paper were broadly similar to the
mathematics I have used before in my academic research on radiation
physics," Dr Grimes said.

Building the equation
To
derive his equation, Dr Grimes began with the Poisson distribution, a
common statistical tool that measures the probability of a particular
event occurring over a certain amount of time.

Using a handful of assumptions, combined with mathematical deduction, Dr Grimes produced a general, but incomplete, formula.

Specifically,
he was missing a good estimate for the intrinsic probability of a
conspiracy failing. To determine this, Dr Grimes analysed data from
three genuine collusions.

The first was the surveillance program
conducted by the US National Security Agency (NSA), known as PRISM. This
programme involved, at most, 36,000 people and was famously revealed by
Edward Snowden after about six years.

Dr Grimes analysed genuine cases of collusion, such as the PRISM surveillance programme, to come up with his estimates

The second was the Tuskegee syphilis experiment, in which the cure
for syphilis (penicillin) was purposefully withheld from
African-American patients.

The experiment may have involved up to 6,700 people, and Dr Peter Buxtun blew the whistle after about 25 years.

The
third was an FBI scandal in which it was revealed by Dr Frederic
Whitehurst that the agency's forensic analysis was unscientific and
misleading, resulting in the imprisonment and execution of innocent
people....MORE

So what happens if the Saudis break the dollar peg and devalue?
Coordinated with the Chinese.
As the Russians go 160 to the dollar?

From the Wall street Journal's Washington Wire:

It’s hard to read about how Saudi Arabia’s rulers are handling the collapse of oil prices
without recalling the end of the Soviet Union. Every petro-state has to
ponder this precedent, but for the Saudis the parallels must be
unnerving. Consider: Their economy is inefficient and undiversified,
based on irrational pricing and vast subsidies. There’s no modern
taxation system; money just sloshes around, Soviet-style, on the basis
of insider connections. There are no mechanisms of meaningful political
representation, and after years of senescent leadership a new generation
is clamoring to take over. Growing ethnic divisions and the military’s
huge share of the economy round out the picture. To all this, add a
sharp drop in export earnings, and it’s no surprise that people worry
about systemic failure.

It’s not just Saudi Arabia’s problems, of course, that bring to mind the latter-day Soviet Union. It’s their response to these problems: The desire to bring the economy into the modern world, the urge to rationalize and privatize—these are straight out of Mikhail Gorbachev’s playbook. (If you doubt this, read Prince Muhammad bin Salman’s recent Economist interview as
well as Mr. Gorbachev‘s 1987 book, “Perestroika: New Thinking for Our
Country and the World”—especially the section titled “On to Full-Cost
Accounting!”)

As for opening up the system, I suspect Saudi experts would scoff at
comparisons between the kingdom’s December elections (in which women voted for the first time) and Soviet-style glasnost. But give it time. People initially scoffed at Mr. Gorbachev’s political reforms too.

Saudi strategy diverges from the Soviet model in one crucial area:
foreign policy. Mr. Gorbachev always argued that transformation at home
required peace abroad—and he single-mindedly pursued accommodation with
the U.S. The Saudi stance, by contrast, is both confrontational and
interventionist. Ask Iran and Yemen....MORE

If you lived in north-east Iowa, the evangelical stronghold where the
battle for the soul of conservative American politics will play out in
person on Monday, and happened to have given Senator Ted Cruz’s campaign
your email address sometime in the last few months, you might find
something especially appealing this weekend in your Facebook feed.

You might see, amid the family photos, a menacing video of Donald
Trump talking about how “my views are a little bit different than if I
lived in Iowa”. LIKE ON ABORTION, blares the sponsored ad
from Cruz’s deep-pocketed, social media-savvy digital team. And you
might wonder how this campaign managed, by paying Facebook, to
differentiate between Trump’s “New York values” and “OURS”.

Facebook, which told investors on Wednesday it was “excited about the
targeting”, does not let candidates track individual users. But it does
now allow presidential campaigns to upload their massive email lists
and voter files – which contain political habits, real names, home
addresses and phone numbers – to the company’s advertising network. The
company will then match real-life voters with their Facebook accounts,
which follow individuals as they move across congressional districts and
are filled with insightful data.

The data is encrypted and not maintained by Facebook after ads run,
the company said. Acxiom, a massive data broker based in Little Rock,
Arkansas, helps campaigns upload the voter info. But a campaign
operative said the Texas senator has been using Facebook ads to raise
money, among other things, and a Guardian analysis shows Cruz-affiliated
donors are spending $10,000 per day on Facebook “placement” as the
first vote nears.

In Iowa, the Cruz campaign is using Facebook to target voters on a
range of broad issues like immigration controls to niche specific causes
such as abolishing state laws against the sale of fireworks. The
Guardian understands the campaign has built a specific model for this
relatively small group of voters, who may be responsive to Cruz ads
against big government, and in some cases is going out to find them
individually.

Political scientists, current campaign advisors and former digital
gurus to Barack Obama and Mitt Romney agree: a Facebook ad is perhaps
the best money to spend inwhat could be a nearly $10bn election, and 2016 is fast becoming the year Facebook learned to profit from how you vote.

The acceleration of real-time voter targeting reflects a growing
consensus that, in addition to knocking down Trump this weekend,
campaigns of the future will depend as much on being able to track
people across screens and apps as knocking on doors or sending out
flyers.

Facebook profiles turned into campaign currency also offer another
sign of Silicon Valley’s growing influence in America’s political
system. The company in recent years has increased its lobbying efforts
in Washington to press immigration, surveillance and patent policy,
while doubling its political staff and adding other features to make it
easier for campaigns to reach specific voting groups in what Facebook
executive Sheryl Sandberg this week dubbed “the new town hall”.

“Facebook is the easiest and most effective platform,” said Zac
Moffatt, the top digital strategist for Romney’s 2012 campaign whose
firm, Targeted Victory, has worked with most of the Republican
presidential candidates and the Republican National Committee during
this election cycle. “They are so much more valuable than they were
eight years ago.”

Shaping perceptions, making millions
Campaigns have been using Facebook to talk to voters since 2008, when
Obama’s first bid for president famously used the platform to get
supporters to push their digital friends to support the upstart senator.
In 2012, Facebook began co-sponsoring presidential debates in the
Republican primaries.

This time around, as Republicans
spend big to catch up on Democrats’ advantage on tech-driven campaigns,
Facebook has launched another new feature to help campaigns target
politically active users, who might post constantly about Trump’s latest
insult or share the increasing poll leads of Bernie Sanders....MUCH MORE

News article - 7 Dec 2015
This year, along with his traditional Christmas cards, Director GCHQ
Robert Hannigan is including a brain-teasing puzzle that seems certain
to exercise the grey matter of participants over the holiday season.

The card, which features the 'Adoration of the Shepherds' by a pupil
of Rembrandt, includes traditional Christmas greetings from Director on
behalf of the department. However, unlike previous years, the 2015 card
will contain a grid-shading puzzle and instructions on how it should be
completed. By solving this first puzzle players will create an image
that leads to a series of increasingly complex challenges.

Once all stages have been unlocked and completed successfully,
players are invited to submit their answer via a given GCHQ
email address by 31 January 2016. The winner will then be drawn from all
the successful entries and notified soon after. Players are invited to
make a donation to the National Society for the Prevention of Cruelty to Children, if they have enjoyed the puzzle.
People who enjoy puzzles, but who are not yet on Director's Christmas
card list, need not worry. The first puzzle can be seen below.

Getting started

In this type of grid-shading puzzle, each square is either black or
white. Some of the black squares have already been filled in for you.
Each row or column is labelled with a string of numbers. The
numbers indicate the length of all consecutive runs of black squares,
and are displayed in the order that the runs appear in that line. For
example, a label "2 1 6" indicates sets of two, one and six
black squares, each of which will have at least one white square
separating them.

Click on image for a downloadable version.

Complete the grid carefully with a black pen and check your answer is complete and correct before proceeding.

“The paradox of Norway’s oil exports is that lower foreign earnings translate into more, not less, demand for NOK.”

That’s from Deutsche Bank and it sums up the conundrum
facing Norwegian officials as they attempt to cope with the sharp
decline in crude prices that threatens to cripple the country’s economy.

Norway’s prime minister, finance minister and central bank
governor held an extraordinary meeting last week to discuss the
possibility of implementing emergency measures to shore up the economy
in addition to record fiscal stimulus.

It’s “not a crisis,” they concluded, an assessment that’s sharply at odds with comments made by Bente Nyland, director general of the Norwegian Petroleum Directorate earlier this month and sharply at odds with reality.

“Right now the economic policies that we presented in our
October budget are working,” Finance Minister Siv Jensen said. “What we
have said today is that we are prepared to act if needed.”

Compounding the problem for Norway is that while the
country’s officials remain “ready to act”, central bankers the world
over are already acting and that’s inhibiting the NOK’s ability to function as a counter cyclical buffer for the country’s economy.

Even as the ECB, the SNB, the Nationalbank, and the Riksbank all stuck in NIRP, the Norges Bank is at 75 bps. Positive 75 bps.

That means the NOK can’t fall as much as it needs to to help the economy absorb the blow from lower crude. As Bloomberg put it last year, the krone “just can’t get weak enough.”

Here's the rub. In order to fund the fiscal stimulus the
economy needs to stay on its feet, Norway is tapping into its sovereign
wealth fund. In short, expenditures are set to exceed revenues and so,
it's time to tap the piggy bank which, at $830 billion, is the largest
rainy day fund on the planet. The problem here is that oil proceeds must
be converted to kroner before they can be used to cover budget needs.
That means the Norges bank is a buyer of NOK. Here's how it works, via Deutsche:

The amount of state petroleum revenues converted into
NOK is a function of the non-oil budget deficit. Revenues in foreign
currency from the SDFI are transferred daily to the Norges Bank’s
petroleum buffer, before being distributed to the GPFG. By contrast,
revenues from the Statoil dividend and oil tax are transferred to the
government directly in krone, after companies have sold their foreign
exchange revenues to pay the dividend and the tax.

When krone revenues from the Statoil dividend and oil
tax exceeds the non-oil budget deficit, the Norges Bank converts this
surplus on behalf of the government into foreign exchange, depositing it
in the petroleum buffer before transfer to the GPFG. The Norges Bank
thus buys foreign exchange and sells krone on behalf of the government. Where
krone revenues from the Statoil dividend and oil tax are insufficient
to cover the non-oil budget deficit, no krone is converted back into FX
by Norges Bank. Instead, SDFI revenues in the petroleum buffer are
converted into krone. As a result the Norges bank sells FX and buys
krone on behalf of the government.

Simple enough. Here it is visually:

Here's a look at the history as well as a chart which depicts the convergence of oil revenues and the deficit:

So as you can see from the left pane above, the Norges Bank
announced it was set to become a buyer of NOK at a clip of 250 million
per day starting in October of 2014....MORE

Is a secret sniper killing off Isil's high command in Libya?Mystery gunman credited with shooting three of the terror group's leaders in
their new "Caliphate" in Colonel Gaddafi's home city of Sirte

As befits all the best practitioners
of his shadowy trade, no-one is quite sure whether he is one man or
many, or even simply an urban legend.

But after a string of assassinations of its local henchmen, the Islamic
State's new "Caliphate" in the Libyan city of Sirte is abuzz with talk
that an anti-Isil sniper is at work.

In recent weeks, no fewer than three Isil commanders in Sirte have been shot dead from long range, according to local media.

The killings - reported to be the work of a
sniper who honed his skills in Libya’s uprising against Colonel Gaddafi -
are said to have sowed panic among Isil's forces in the city, who have
carried a string of arrests and executions in a bid to track down the
culprit.

The Sirte assassin's most
recent casualty, according to social media reports from Sirte, was
Abdullah Hamad Al-Ansari, an Isil commander from southern Libyan city of
Obari, who was shot dead on January 23 as he left a city centre mosque.

The birthplace of Libya's late Colonel Gaddafi, Sirte has been under Islamic State control since
last summer, Libyan intelligence officials estimating that there may
now be up to 2,000 jihadist fighters now based there.

The port
city’s new masters have made brutal examples of opponents, via a regime
of floggings and beheadings enforced by black-masked religious police....MUCH MORE

Saturday, January 30, 2016

Contra the IBD headline, I think the mistake was keeping rates too low for too long.
So, if the Fed is going to have any maneuvering room on rates before going negative during the next recession, raising them sooner is better than later, or never.

From Investors Business Daily:

The Fed’s Historic Rate-Hike Mistake — In One Chart

Janet Yellen’s Federal Reserve has done something that no other Fed
has done since Paul Volcker aimed to quash runaway inflation in the
early 1980s, even if it meant a recession — and it did.

New Commerce Department data out Friday show that nominal GDP grew at
a 1.5% annualized rate in the fourth quarter, casting further doubt on
the Fed’s decision to begin hiking its key interest rate in December.
(Inflation-adjusted GDP rose just 0.7% in Q4.)

With
the exception of Volcker’s interest-rate hike in early 1982 amid a
recession, no other Fed has raised rates during a quarter in which
nominal GDP grew less than 3%, dating back to the early 1970s.

In fact, a rate hike when nominal GDP is growing less than 4% is
extremely rare. From 1983 to 2014, it only happened twice, and one of
those times (the second quarter of 1986), the Fed cut rates by a half-point before retracting 1/8th of a point of the reduction.

That makes the first quarter of 1995, when nominal GDP grew 3.7%, the
only time since Volcker that the Fed had, on net, raised rates in a
quarter when nominal growth was running below 4%. After that early 1995
hike, it should be noted, the Fed proceeded to cut rates three times
before the next rate hike in early 1997....MORE

Our lives are immeasurably easier and more connected than we could
ever have imagined just 20 years ago. But to reap these benefits, we’ve
had to cozy up to our tech. So close, in fact, that it has become
personal, almost a part of who we are. But every now and then, that
closeness enables us to see a darker side of the relationship:
Sometimes, it seems, our devices are actively working against us. The
phone that spontaneously reboots just when you need it most; the
computer that crashes only when you have unsaved changes; a bug that
suddenly appears when you demo your code.

This tendency for things not just to fail but to seemingly fail out of spite was labeled Resistentialism by the British humorist Paul Jennings back in the 1960s, but similar terms have been coined in the years since. We are often FOBIO (frequently outwitted by inanimate objects) or FOILED (frequently outwitted by inanimate, lame electronic devices). The editor and writer Edward Tenner coined the phrase revenge effectto
refer to an unintended and negative consequence of some new or modified
technology: Get everyone on e-mail and the result isn’t a paperless
utopia but soaring consumption of office paper; give everyone faster
Internet connections and the result isn’t a boom in leisure time but a
dearth of time away from work. Programmers talk of Heisenbugs,
software errors that disappear or change their behavior when the
programmer tries to trace them or examine them (incorrectly named after
the physicist Werner Heisenberg, whose Uncertainty Principle states that
we can never know perfectly the position or momentum of a particle
beyond a certain minimum level, and which is often confused with the Observer Effect, where the act of observing a particle alters its properties).

It’s nice to have a world of information in your pocket, but make devices too small and you get thefat-finger problem:
the tendency to make errors on a device where screen elements are too
small for human digits. (Scammers are taking advantage of the related
problem of fat-finger dialingby
setting up toll numbers that differ by one digit from popular numbers,
so as to glean money from misdials.) The solution is phone software that
checks our spelling, but this in turn has created the autofail, an indecorous or nonsensical error introduced into a message by such software. A synonym is the Cupertino effect, so-named because early versions of Apple’s spell-checkers would often change the word cooperation to Cupertino, the location of Apple’s headquarters. The equivalent for an error created by voice-recognition software is the speako (a play on typo)....MORE

As Mattel rolls out some additions to the Barbie line-up, three new body types, "tall, curvy and petite" along with seven skin tones, 22 eye colors and 24 hairstyles--collectors are calling their banks to confirm their credit lines-- here's some backstory from Messy Nessy Chic:

Meet Lilli, the High-end German Call Girl who became America’s Iconic Barbie Doll

So it turns out Barbie’s original design was based on a German adult gag-gift escort doll named Lilli. That’s right, she wasn’t
a dentist or a surgeon, an Olympian gymnast, a pet stylist or an
ambassador for world peace. And she certainly wasn’t a toy for little
girls…

Lilli on display at the Barbie Museum in Prague

Unbeknownst to most, Barbie actually started out life in the late 1940s
as a German cartoon character created by artist Reinhard Beuthien for
the Hamburg-based tabloid, Bild-Zeitung. The comic strip
character was known as “Bild Lilli”, a post-war gold-digging buxom broad
who got by in life seducing wealthy male suitors....

...She was famously quick-witted and known to talk back when it came to
male authority. In one cartoon, Lilli is warned by a policeman for
illegally wearing a bikini out on the sidewalk. Lilli responds, “Oh, and
in your opinion, what part should I take off?”...MORE than you probably cared to know.

We've been saying for a while now that equities are in that phase where it's almost impossible to have a bull market without the participation of the the financial stocks, some links below.
From Barron's:

Big U.S. banks are in better shape than they
have been in years, and yet they trade at levels last seen in 2011. Why
Citi, JPMorgan, BofA, and Wells Fargo could jump 20%.

Everyone knows that stocks have had a
miserable January, one of the worst ever, but what they don’t know is
that it could be a good sign. Even after rallying on Friday, the
Standard & Poor’s 500 index finished the month down 5.1%. That’s the
seventh-worst start since 1950, based on data from the Stock Trader’s
Almanac. It’s encouraging, though, that five of the six weaker Januarys
were followed by gains in the rest of the year.

This
year, with declines in oil and other commodities raising concerns about
global economic growth, investors have gravitated toward defensive
sectors, like telecom and utilities, which finished higher in January,
while dumping financials, technology, and materials stocks.

Bank
stocks got off to a particularly weak start, with the widely followed
KBW Bank Index of 24 companies, known as the BKX, falling 13%, led by
big losses for the largest banks.
Citigroup
(ticker: C) declined 18%, to $42.50, and
Bank of America
(BAC) was off 16%, to $14;
Morgan Stanley
(MS), which is technically a bank but more of an investment bank, fell 19%, to $26.

With
the selloff, the banking sector looks like one of the best bargains in
the market. “This is an exciting time,” says CLSA banking analyst Mike
Mayo. “Bank balance sheets are as strong as they’ve been in decades, and
stock prices resemble recession troughs. Earnings are more stable than
they have been in decades, and capital ratios are at the highest levels
in 80 years.” Credit Suisse analyst Susan Katzke calculates that nine
big banks she covers have tangible equity capital ratios averaging 8%
now, double the levels in 2007, prior to the recession.

At
its nadir last week, the BKX index was at its lowest level since
mid-2013, and valuations were back to levels last seen in 2011, when the
stock market was rattled by fears about Greece’s financial crisis.

As
the table shows, the 10 leading banks and investment banks now trade
for eight to 12 times projected 2016 earnings—a steep discount to the
market multiple of about 16—and many trade near or below tangible book
value. Some sport yields of 3% or more, and all will probably get the
regulatory go-ahead to lift dividends later this year.

Tangible book, a conservative measure of
shareholder equity, excludes goodwill and other intangible assets, which
usually stem from acquisitions. It’s often viewed as a measure of
liquidation value and doesn’t give banks credit for franchise value and
low-cost deposit bases.

There’s probably at least 20% upside in all of these banks, which would still leave some below where they started the year.

“We’re
constructive,” says Jason Goldberg, a banking analyst at Barclays. “The
concerns we have are more than reflected in current valuations.” He
says eight of the 22 banks in his coverage traded below tangible book
value last week. The last three times that happened—in summer 1990,
early 2009, and August 2011—turned out to be excellent buying
opportunities.

WHAT ARE THE KEY ISSUES now?
Wall Street is worried about the industry’s loans to the increasingly
distressed U.S. energy sector. But based on information provided on
banks’ energy exposure in fourth-quarter earnings releases and
presentations on conference calls, that exposure looks manageable.
Oil-and-gas companies generally account for no more than 1% to 3% of
total loans, and banks already have set aside reserves against potential
losses.

On the
Wells Fargo
(WFC) call, for instance, executives said they believe the bank
to be adequately reserved for its $17 billion of disclosed energy
exposure. CEO John Stumpf said the situation for banks now is better
than it was in the 1980s, when energy prices collapsed. One reason is
that much of the debt on the books of energy borrowers is subordinate to
bank debt, giving banks more cushion....MUCH MORE

Halting the explosive spread of Zika means waging war with mosquitoes. There are several ways, old and new, to win that war.

The Zika virus is out of control. Earlier this week, the World Health
Organization called it an “explosive” epidemic, and officials in
Brazil, the country hardest hit by the disease, have admitted that they
are “losing badly” to the disease. Brazilian president Dilma Rousseff
went so far as to declare war on Aedes aegypti, the mosquito that transmits Zika. Officials in several other countries in the region have asked women to consider not getting pregnant until the epidemic is brought under control.

The good news is this: we know how to fight mosquitoes, and our
arsenal is growing bigger by the day. In her declaration, Rousseff said
she will dispatch over 200,000 troops throughout Brazil to enact tried
and tested methods of combatting mosquito populations. That includes
spraying insecticides, eliminating pools of standing water, and
educating the public. These methods work: in 1942 Brazil undertook a
campaign to eradicate A. aegypti across the country, largely in
response to yellow fever. Countries throughout South America, Central
America, and the Caribbean joined in, as did the Rockefeller Foundation
in the U.S., and by 1962 Brazil and 17 other countries were free of the mosquitoes.

But such methods also take time, and time is not on our side for
fighting a disease that has spread as far as it has despite only arriving in the Western hemisphere in 2014. As the situation worsens, several technological approaches may start to look appealing.

The first is rather mundane: cell phones. Cell phones are useful
because they record the movements of their owners. That data can be used
to track disease hot spots and predict where they may flare up next.
The technique has already been employed in Africa in the battle against malaria and in Pakistan against dengue fever—both mosquito-borne diseases like Zika.

Genetically modified mosquitoes could also have a role to play. Successful tests in the Cayman Islands and Brazil have shown that the introduction of modified male mosquitoes can cause local populations to crash.
But these tests, conducted by the British firm Oxitec, have so far been
on the scale of a few neighborhoods. Ramping up the process to cover
all of Brazil would require a huge logistical effort to grow and
distribute the modified insects.

Then there is the gene drive.
This newly developed technology involves inserting genes into an
organism in such a way that a trait spreads throughout a whole
population. In theory, a gene drive could be created that prevents
mosquitoes from incubating Zika virus—or destroys the entire species of A. aegypti. A gene drive has been created that prevents mosquitoes from harboring the malaria parasite.
But some researchers are understandably concerned about intentionally
messing with natural selection. Once a drive is released into a wild
population, there is no turning back, and there is no telling what sort
of side effects it might have....MORE

The White House on Friday would not rule out the possibility that a
final Syrian political peace deal, if one could ever be reached, would
include a re-election path for Syrian dictator Bashar Assad.

"The details are going to have to be worked out by the Syrian people,
and that is entirely appropriate," White House press secretary Josh
Earnest said during his daily briefing when asked whether a final deal
could allow Assad to remain in power and run for re-election. "We're not
dictating the outcomes, here. We need the Syrian people to engage on
this."

After first boycotting the beginning of the talks early Friday,
Syria's main opposition group agreed to travel to Geneva to the opening
of preliminary meetings aimed at forging a political process that could
end the bloody civil war that has killed an estimated 250,000 people.
But the Syrian rebels said they wanted to discuss humanitarian issues
before beginning the political negotiations.

The discussions that began Friday are considered only "proximity
talks," the first step in an effort toward deeper negotiations to end
the fighting in more than two years. U.N. envoy Staffan de Mistura
invited both the Assad regime and an umbrella opposition group to Geneva
for meetings with separate parties in different rooms.

After the High Negotiations Committee, the umbrella Syria opposition
group, reversed course and agreed to attend the meetings, Kerry welcomed
its "important" decision.

He then reiterated U.S. support for a previous U.N. commitment
ensuring safe passage for opposition groups trying to provide "urgent
humanitarian access for besieged areas of Syria."

"The United States further expects that both sides in these
negotiations will participate in good faith and achieve early,
measurable progress in the days ahead," Kerry said in a statement early
Friday evening.

Syrian rebel groups are deeply concerned that the Obama
administration is too close to the Iranians and Russians after reaching
the nuclear deal with Tehran last year, and might cut them a bad deal
that would include allowing Assad to run for re-election.

Speculative reports also surfaced this week that Secretary of State
Kerry had threatened rebel leaders in Syria with yanking their funding
if they did not come to the negotiating table....MORE

And from The Australian:

US may let Bashar al-Assad retain power, say Syrian rebels

The US has thrown Syria’s dictator a
potential lifeline as it tries to push the squabbling sides in the
conflict to begin peace talks, it was claimed yesterday.

Rebel
negotiators said that US Secretary of State John Kerry had told them
they might have to accept­ Bashar al-Assad as part of a future Syrian
government of ­national unity.

That would mark a significant
change in the US position. It has insisted Assad had to stand down while
a transition administration ran the country before elections. A unity
government could allow him to stand for re-election, with no set
timetable for his depart­ure.

Rebel sources described Mr Kerry’s
reversal — which it is claimed was outlined to Riyad Hijab, general
co-ordinator of the High Negotiations Committee, and other delegates
representing the Syrian opposition in Riyadh over the weekend — as a
“scary retreat” that brought the US closer to the stance taken by Assad
allies Iran and Russia­.

Syrian National Coalition president
Khaled Khoja told CNN: “Kerry did not make any promises, nor did he put
forward any initiatives.

“He has long been delivering messages
similar to those drafted by Iran and Russia, which call for the
establishment of a ‘national government’ and allowing Bashar al-Assad to
stay in power and stand for re-election.”

Rebel sources added Mr
Kerry implied that US support for them could ebb away if they failed to
­attend or scuppered the talks, saying they risked “losing friends”....MORE

All of which gets very interesting if you obsess about this stuff and recall a story from last year in what may be the world's most difficult opinion polling situation, ORB International's work in Iraq and Syria last summer as reported by Global Research December 11th:

Bashar Al-Assad Has More Popular Support than the Western-Backed “Opposition”: Poll

In the view of Syrians, the country’s president, Bashar al Assad,
and his ally, Iran, have more support than do the forces arrayed
against him, according to a public opinion poll taken last summer by a
research firm that is working with the US and British governments. [1]

The poll’s findings challenge the idea that Assad has lost legitimacy and that the opposition has broad support.

The survey, conducted by ORB International, a
company which specializes in public opinion research in fragile and
conflict environments, [2] found that 47 percent of Syrians believe that
Assad has a positive influence in Syria, compared to only 35 percent
for the Free Syrian Army (FSA) and 26 percent for the Syrian Opposition
Coalition.

At the same time, more see Assad’s ally, Iran, as having a favorable
influence (43%) than view the Arab Gulf States—which back the external
opposition, including Al Nusra and ISIS—as affecting Syria favorably
(37%).

The two Arab Gulf State-backed Al-Qaeda linked organizations command
some degree of support in Syria, according to the poll. One-third
believe Al-Nusra is having a positive influence, compared to one-fifth
for ISIS, lower than the proportion of Syrians who see Assad’s influence
in a positive light.

According to the poll, Assad has majority support in seven of 14
Syrian regions, and has approximately as much support in one, Aleppo, as
do Al-Nusra and the FSA. ISIS has majority support in only one region,
Al Raqua, the capital of its caliphate. Al-Nusra, the Al-Qaeda franchise
in Syria, has majority support in Idlip and Al Quneitra as well as in
Al Raqua. Support for the FSA is strong in Idlip, Al Quneitra and Daraa.

An in-country face-to-face ORB poll conducted in May 2014 arrived at
similar conclusions. That poll found that more Syrians believe the Assad
government best represents their interests and aspirations than believe
the same about any of the opposition groups. [3]

The poll found that 35 percent of Syrians saw the Assad government as
best representing them (20% chose the current government and 15% chose
Bashar al-Assad). By comparison, the level of the support for the
opposition forces was substantially weaker:

• Al-Nusra, 9%
• FSA, 9%
• “Genuine” rebels, 6%
• ISIS, 4%
• National Coalition/transitional government, 3%
The sum of support for the opposition forces, 31 percent, was less than the total support for Assad and his government.

Of significance is the weak support for the FSA and the “genuine”
rebels, the alleged “moderates” of which British prime minister David
Cameron has improbably claimed number as many 70,000 militants. Veteran
Middle East correspondent Robert Fisk has pointed out that if the ranks
of the moderates were this large, the Syrian Arab Army, which has lost
60,000 soldiers, mainly to ISIS and Al-Nusra, could hardly survive. Fisk
estimates generously that “there are 700 active ‘moderate’ foot
soldiers in Syria,” and concludes that “the figure may be nearer 70,”
closer to their low level of popular support. [4]...MORE

Friday, January 29, 2016

Tripoli- Confidential documents reviewed by Asharq Al-Awsat revealed a
plan made by senior leaders in ISIS, Libyan Islamic Fighting Group,
which is affiliated with al-Qaeda, and the Islamic Brotherhood in Libya
to integrate into a unified “Shura Council”.

The documents reflect the existence of a state of confusion among the
leaders of the extremist groups following the signing of the National
Reconciliation Government agreement led by Fayez Al-Siraj. These
organizations headed towards integration to limit the internal
conflicts, which emerged between a number of their leaders due to
external interventions.

A leader in the Libyan Islamic Fighting Group told some of his
colleagues from Tripoli leaderships that his group has lost its prestige
due to the weakness of al-Qaeda and the strength of ISIS. He added that
the situation now requires integration with ISIS and that Tripoli must
now be for Libyan Islamic Fighting Group and the Islamic Brotherhood,
led by ISIS....MORE

Complex-chaotic requires big horsepower to figure out. It'll probably take the quantum machines coming down the pike but this is a start and more worthy of Watson than Jeopardy!
From TechCrunch:

IBM Closes Weather Co. Purchase, Names David Kenny New Head Of Watson Platform

IBM is taking another step to expand its Waston AI business and build
its presence in areas like IoT: today the company announced that its acquisition of the Weather Company — the giant weather media and data group — has now officially closed.

IBM is not disclosing the value of the deal: it was originally reported to be in the region of $2 billion,
but sources close to IBM tell us this was inaccurate. (For context, the
Weather Company was previously acquired in 2008 for $3.5 billion by a
consortium that included Bain, Blackstone and NBC Universal.)

As part of the deal, IBM is making some changes: First, the Weather
Company’s cloud platform will now run on IBM’s Cloud data centers
(recall that it once was a big client of AWS). That platform will now power all
of IBM’s wider push into data services and Watson’s Internet of Things
business. This will bring a massively bigger amount of data into the
mix, covering what IBM describes as billions of IoT sensors.

IBM will also use its weight to scale the Weather Company’s business:
the company plans to expand weather.com into five more markets
including China, India and Brazil “immediately”, as well as integrate it
into IBM’s 45 global cloud centers.

IBM is also making an executive change: David Kenny, who had been the
CEO of the Weather Company, will take on a newly-created role at IBM
running the company’s wider Watson platform business.

The IBM acquisition will include most — but not all — of the Weather
Company’s assets: its B2B, mobile and cloud properties; weather.com;
Weather Underground; The Weather Company brand; and WSI, which houses
all the company’s data science and enterprise services will all fold
into Big Blue.

The Weather Channel — perhaps the Weather Company’s most
mainstream product — is not included. But as part of the sale, under a
long-term contract, it will license weather data forecasts and analytics
now owned by IBM.

IBM and the Weather Company had already been working together as partners —
IBM cut a deal in 2015 to tap into the Weather Company’s network of
100,000 weather sensors to ingest data for its
machine-learning-based analytics services. The acquisition will now give
IBM ownership of the company’s tech, and help it deliver more services
around the weather vertical to current and existing IBM customers....MORE

If I were Monsanto I'd be looking over my shoulder to see if IBM was getting into the big data/insurance/chemicals biz that MON's Climate Corp. acquisition has been working.

Hedge fund manager Bill Ackman has seen the
enemy of investors. And it’s in the form of a seemingly benign friend of
many investors – the common market-weighted index fund.

In his latest letter to shareholders of his fund house, Pershing Square Capital, Ackman starts out by discussing the reasons
for his firm’s sharp underperformance relative to their index
benchmarks last year. But he also devotes considerable space to
criticizing index funds, which have been one of the fastest-growing
segments of money management in the past decade.

Indeed, Vanguard Group,
the biggest provider of index-tracking products in the world, reported
recently that it attracted $216 billion in inflows last year, the
all-time record annual amount for any fund company.

And
billions of dollars in recent years have also flowed into non-Vanguard
index funds such as the SPDR S&P 500 exchange-traded fund (ticker:
SPY
), the iShares MSCI EAFE ETF (
EFA
) and the PowerShares QQQ Trust (
QQQ
).

Others in the alpha-chasing
crowd have criticized the inherent nature of index funds for years. But
Ackman comments are fairly lengthy and wide-ranging for a hedge fund
manager, even going as far as claiming that the indexing movement is
turning the U.S. into Japan.

“At
current rates of asset inflows, it will not be long before index funds
effectively control Corporate America and the corporations of many
foreign countries,” Ackman writes. “The Japanese system of cross
corporate ownership, the keiretsu, has been blamed for decades of
Japanese corporate underperformance and economic malaise. Large passive
ownership of Corporate America by index funds risks a similar outcome
without the counterbalancing force of large active investors and
improvements in the governance oversight implemented by passive index
fund managers.”

Ackman’s main argument –
and it’s a common knock on standard-issue market-weighted index funds –
is that a purchaser is buying inherently overvalued stocks....MORE

Applying Betteridge's law of headlines we get a 'No', while consulting the Magic 8-Ball results in, wait a moment, "Reply hazy try again".
Well there you go.

From FundStrategy:

The Bank of Japan’s move to introduce negative interest rates
revealed the Japanese QE program has not worked, experts say, who remain
skeptical as to whether the move will actually work for the economy.

Japan reduced its benchmark rate to -0.1 per cent in a shock move announced today, meaning commercial banks will be charged by the central bank for some deposits. The new measure will start on 16 February.

The central bank, led by Haruhiko Kuroda, also said it will push the rate even lower “if judged as necessary”.

Hargreaves Lansdown senior analyst Laith Khalaf says the BoJ’s move
shows how “twitchy” policy makers are getting about the faltering global
growth and the potential for deflationary pressures to get “out of
control”.

He says: “Taking a step back it seems that if throwing 80 trillion
yen at the problem each year has proved insufficient, the Bank of Japan
may soon find itself unscrewing the kitchen sink.”

Experts are doubtful on the real benefit the rate cut will have on the Japanese economy.

To justify its move, the BoJ said although Japan’s economy continues
to recover “moderately”, but that uncertainties over developments in
emerging markets and China will remain.

Fidelity’s Kok Wei Yee, portfolio manager of the Japan Active Growth
fund, says the move from BoJ is a welcome boost for global investor
sentiment and business confidence but the actual impact on company
funding rates in Japan or the real economy is “not that big”.

He says: “In terms of overall impact this is actually smaller than
the BoJ’s previous easing measures. However, the recent market sentiment
fear is probably more of a crisis of confidence, given the uncertainty
over China and the uneasiness as the US Fed begins a phase of interest
rate hikes....MORE

George Soros' investment track record made him the equivalent of a
.400 hitter in baseball. Yet, in a decade that has been lousy for all
investors, even the "Granddaddy of Hedge Fund Managers" has had it
tough.

Soros quietly left the hedge-fund scene in 2011, turning
his fund into a family office. But his last few years in the game were
hardly like his first. Indeed, 2010 was Soros' worst year since 2002,
with his flagship fund up a mere 2.63%. The following year was even
worse, with his famed Quantum fund reportedly down 15%.

A quick
glance at Warren Buffett's returns shows that the Oracle of Omaha has
had a tough stretch as well. Over the past 15 years, Berkshire
Hathaway's average annual returns have shrunk to 7.89%. Granted, that's
over a span in which the S&P 500 has risen only 4.35% a year.

Nevertheless, these anemic returns are a long way from either Soros' or Buffett's glory days.
Prior
to the dotcom bust in 2000, both Soros and Buffett boasted enviable
"30:30" track records: Average annual returns of 30% over a period of 30
years. Today, Buffett's long-term track record in the 50 years between
1965 and 2014 has fallen to 21.6%. And last year's drop of 12.06% did
little to improve it.

The last time hedge fund managers like John
Paulson and Kyle Bass were able to generate outsized returns was in
2008 with a big bet against mortgages. And both Paulson and Bass have
struggled since.

With consistent double-digit percentage returns
a thing of the past, it is no wonder many of the original hedge-fund
greats like Soros and Stanley Druckenmiller have called it quits.

So
will any investor ever again dominate the financial markets the way
Soros and Buffett did between the mid-1960s and the dotcom meltdown of
2000?
The short answer is "no,” and here's why ...

Gould's argument is straightforward. The overall quality of
performance in baseball has improved over time. That makes achieving
"outlier" performances like a .400 batting average less likely.
On
the one hand, it became harder for batters to get on base as pitchers
mastered new pitches like the slider. Bigger gloves improved fielding.
Managers became increasingly savvy in positioning their players
defensively and using relief pitchers whose track records indicated they
performed well against particular hitters.

On the other hand,
batters became bigger and stronger with improved nutrition, the use of
supplements and weight lifting. Today, baseball players spend less time
brawling in bars and more time working out. Some even watch their diets
closely.

As everyone in baseball ups the quality of his game, the
top players are performing closer and closer to the limits of what is
humanly possible. That also means less room for "variation" at the
extreme edges of the performance bell curve — that is, where outliers
such as .400 hitters can stand out.
As Gould puts it, the "truly superb cannot soar so far above the ordinary."

The same goes for hedge-fund managers
I
believe that you can apply Gould's reasoning to the fading returns of
the world's top investors. The success of both Soros and Buffett
inspired a new generation of hedge-fund managers whose own competitive
streak made the likelihood of "30:30" track records ever more remote.

Today,
there are tens of thousands of "quants" armed with PhDs combing through
global financial markets. These Soros "wannabes" have translated their
insights into algorithms, which now account for over 50% of trading on
U.S. stock exchanges.

In contrast, Soros described himself in his
early career when he focused on mis-priced European securities as a
"one-eyed king among the blind." When Soros was investing carefully in
European securities in the early 1960s, he was the best simply because
no one else was doing it....MORE

One real problem is something I mentioned in a rant on arbitrage a few years ago:

...People, people, people arbitrage opportunities have been disappearing for the past 150 years!

I guessing the two commenters didn't have the definition: "The simultaneous purchase and sale of the same instrument in different markets at different prices" pounded into their head so often their ears bled.
I did.
How many arbitrages do they think present themselves each year?

Spotting and acting on an arb is pure alpha and here is a dirty little secret:
The entire amount of alpha available to the entire hedge fund industry is only $30 billion per year.
As reported by a hedge fund maven via Investment News back in 2006:

...PHILADELPHIA - Everyone in the crowd assembled for the CFA
Institute's hedge fund conference took notice when David S. Hsieh said
that the amount of alpha available in the hedge fund industry each year
is $30 billion.

Mr. Hsieh, a professor of finance at the Fuqua
School of Business at Duke University in Durham, N.C., presented a
synopsis of his ongoing research, which focuses on the style, risk and
performance evaluation of hedge funds, at the Feb. 16 conference here.
As part of his work, Mr. Hsieh questioned whether flows into hedge funds
are causing a decline in hedge fund returns and what might happen if
the high rate of inflow continues.

Because of difficulties in
obtaining reliable hedge fund data, Mr. Hsieh used fund-of-hedge-funds
data and broke down returns into alpha and beta sources. He said the
research led him to "feel comfortable" determining that there is a
finite amount of alpha - conservatively, $30 billion - managed by the
approximately $1 trillion hedge fund industry. And even if capital
invested in hedge funds were to rise, the amount of alpha would remain
the same....

Got that? All alpha not just arbitrage but all alpha was just $30 bil. in '06....MORE, including links.

New March front month: 2.265 up 0.083.
From the Energy Information Administration:

In the News:

Natural gas markets weather storm
Though a blizzard brought record daily snowfalls to much of the
East Coast this past weekend, price and consumption effects were
relatively muted, and less pronounced than the effects of very cold
weather the previous week beginning Monday, January 18. In the
Northeast, natural gas spot prices remained greater than the Henry Hub
spot price but were lower than levels earlier this month.

Residential and commercial consumption began last week at relatively
high levels, resulting from very cold temperatures in the Northeast.
During the storm, Friday, January 22, to Sunday, January 24,
residential and commercial consumption averaged 49.8 billion cubic feet
per day (Bcf/d), compared to a five-year (2011-15) average of 53.4
Bcf/d, according to Bentek data. So far in January, total residential
and commercial consumption has been very close to five-year average
levels, unlike December 2015, when consumption was comparatively low
because of much warmer-than-normal weather.

Production remained strong during the storm, even in northeastern
areas. Bentek Energy noted that production showed no signs of being
affected by the storm, despite several feet of snow being dropped on the
area. In the past, low temperatures have caused well freeze-offs....MUCH MORE

StorageEIA reports largest weekly net storage pull in the 2015-16 heating season.
Net withdrawals from working gas totaled 211 Bcf, exceeding the 5-year
(2011-15) average net withdrawal of 170 Bcf by 24%. The withdrawal was
almost twice as large as last year's pull for the same storage week.
This marks the fourth consecutive week of triple-digit storage
withdrawals in the Lower 48 states. Still, working gas levels remain
relatively high, with a surplus of 530 Bcf (21%) compared with last year
at this time, and 432 Bcf (16%) higher than the 5-year average.

Withdrawals from working gas are generally in line with market expectations.
Market analysts predicted working gas draws totaling 207 Bcf for the
week, on average. Prices on the Nymex for the March 2016 futures
contract gained 3¢/ MMBtu to $2.13/MMBtu in fairly heavy trading, with
815 contracts trading hands immediately following the release of EIA's Weekly Natural Gas Storage Report at 10:30 a.m.

The storage report week is the coldest of the 2015–16 heating season.
Temperatures for the report week averaged just less than 32°F, about
1°F below the normal level for this time of year and 6°F below the level
reported last year at this time. The cold snap increased heating
demand by about 8% over the previous week, with heating degree-days
(HDD) totaling 233 for the week. Cumulative HDD remain about 13% below
normal thus far in the heating season, which began November 1, despite
the colder-than-normal temperatures reported for the storage week....

Bank of Japan Governor Haruhiko Kuroda said he is not
thinking of adopting a negative interest rate policy now, signalling
that any further monetary easing will likely take the form of an
expansion of its current massive asset-buying programme.

The Bank of Japan
has adopted negative interest rates in their first benchmark rate move
in five years, but has also chosen not to expand its quantitative and
qualitative easing programme beyond its current level of buying Y80tn
assets a year.
The BoJ has adopted a benchmark rate of -0.1 per cent, from a
previous level of 0.1 per cent. It is the first time they have moved
interest rates since October 2010….
The BoJ also indicated it has not ruled out further imminent easing,
saying “it] will cut the interest rate further into negative territory
if judged as necessary.”

The Bank of Japan surprised the market. It did not expand
its asset purchase plan, which was the main
focus of many market participants, including ourselves. Instead, following a rash of disappointing data, the
BOJ introduced negative interest rates on some excess reserves and vowed to do
more if necessary.

Today's action,
like the expected decision in October 2014 to increase what Japan calls
Quantitative and Qualitative Easing was on a 5-4 vote. It has sent the yen and Japanese interest rates
sharply lower while lifting equity
prices. The dollar initially soared to nearly JPY121.50 from JPY118.50.
There are large option strikes today for the NY cut, including $1.75 bln
at JPY120 and $3.5 bln at 121, according to reports. There is also talk
of a large barrier struck at JPY121.50. The yield on the benchmark
10-year JGB was more than halved to 9 bp. The yield curve is negative
going out through eight years.

In a volatile
session, the Nikkei closed 2.8% higher. It had initially traded below
yesterday's lows and then rallied and closed above yesterday's highs. It
finished above its 20-day moving average for the first time since early
December. Financials were the strongest sector in the Nikkei, adding on
almost 5.6% though bank shares themselves fell 2.3%. In the broader
Topix index, financials underperformed. While the Topix rose 2.9%, financials
rose 1.8%, and the bank sub-sector lost
2%.

The negative
rates will not be as widely applicable as the ECB's negative rate regime. Most of existing excess reserves
will still earn 10 bp annualized. A
sub-category of reserves referred to as
the policy rate balance will be charged 10
bp. Based on holdings as of the end of last year, the policy rates
balance held JPY21 trillion. As the BOJ continues to expand its balance
sheet, the policy rate balance will likely increase by about JPY6 trillion a
month....MORE